Workers should watch their retirement plans

Janet Kidd StewartYour Money

Workers feeling uneasy about their retirement safety nets will find little comfort from a new government watchdog report that is critical of the Labor Department's enforcement of employer retirement-plan laws.

The Government Accountability Office criticizes the Employee Benefits Security Administration, the Labor Department office charged with enforcing retirement-plan laws, for failing to fully implement enforcement upgrades that GAO recommended several years ago.

"Since our 2002 review, EBSA's enforcement program continues to use performance measures that generally focus on how well the agency is managing and using its resources ... rather than on its overall impact on the security of employee benefits," said the GAO report, which can be found at www.gao.gov/new.items/d0722.pdf, along with EBSA's response.

The report does credit the administration with many improvements but said several weaknesses remain. Chief among them: It has not estimated the nature or extent of pension plans' noncompliance, which limits its ability to measure the effectiveness of its enforcement, according to the report.

EBSA also relies too heavily on often outdated workplace complaints, rather than random audits, to bring cases, the report charges.

Without an egregious example of wrongdoing that occurred as a result of this perceived lack of oversight, it's difficult to say how serious these issues are.

"For the most part, people's retirement nest eggs are secure," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "Every now and then, sponsors violate their fiduciary responsibility, and participants get hurt ... [and] better oversight might help reduce such instances. But such events are rare. The bigger threat to retirement security in our new 401(k) world is inadequate saving."

Still, workers may be concerned about the findings of the report, and rightly so, said Michael Kitces, a financial planner with Pinnacle Advisory Group in Columbia, Md.

"On some level this has to be a concern for consumers," Kitces said. In his work reviewing clients' employer-sponsored plans, Kitces said he has found problems from time to time.

Some employers have failed to make required company contributions to plans in difficult economic times, while others didn't deposit employee funds in 401(k) accounts in a timely manner, he said.

"This type of thing tends to crop up at very small employers," he said, adding it is often a matter of a small employer's unfamiliarity with pension laws rather than a deliberate act. "Is it a pandemic? No, but there are abuses out there."So what can an individual retirement saver do?

At a minimum, experts said, consider the GAO report as a reminder to educate yourself about the types of retirement plans you have at work. Are they 401(k) plans, 403(b) plans, profit-sharing, money purchase or defined-benefit pension plans? Each have different rules about what you're entitled to and what your employer must do to operate them.

Ask your benefits department for the summary plan description pertaining to retirement plans and ask for further explanations if that document is unclear.

Consider, too, if your plan has some red flags that might signal trouble, said Donald Trone, chief executive of Fiduciary 360, a Sewickley, Pa.-based firm that performs studies on fiduciary issues and develops oversight tools for retirement-plan sponsors and boards.

For example, does your company's retirement plan have an investment committee? Or is the head of the company the sole trustee? That is one of Trone's red flags.

Some others: Does the committee have an investment policy statement that spells out how the plan will select and monitor investments and manage expenses?

Do you monitor the mutual fund expense ratios in your plan? Another flag is a plan full of fund choices with consistently above-average expense ratios, Trone said. Average expenses in the overall fund market have been dropping, according to Morningstar Inc.

The data firm says a typical retail investor paid 0.93 percent in expenses for a U.S. stock fund in 2005, down from 0.99 percent the year before. Expenses for international funds declined from 1.17 percent to 1.10 percent. Costs for big, institutional firms running large retirement accounts should be even more attractive, but the Morningstar data is a good rule of thumb, Trone said.

E-mail Janet Kidd Stewart at yourmoney@tribune.com.

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